Introduction

Commodity Channel Index (CCI) is a versatile technical indicator that can be used to identify new trends .It is a market indicator used to track market movements that may indicate buying or selling.

Indicator type

Oscillator, Trend

Formula

CCI = (Typical Price – 14-SMA)/ (0.015*Mean Deviation) 

with typical price being (L+H+C)/3; the mean deviation is the average deviation of the 20-period average of typical price; 0.015 is a constant in order to keep CCI between 100 and -100.

How to use:

The CCI compares the current price to an average price over a period of time. The indicator fluctuates above or below zero, moving into positive or negative territory. While most values, approximately 75%, fall between -100 and +100, about 25% of the values fall outside this range

Bullish Scenario

  • When the CCI is above +100, this means the price is well above the average price.This indicates that that there is an prevailing uptrend , hence we can go long when the indicator crosses above 100

Bearish Scenario

  • When the CCI is below -100, this means the price is well below the average price. This indicates that there is a prevailing downtrend, hence we can go short when the indicator crosses below -100.

Building On Mudrex

You can create strategies on Mudrex using simple ‘blocks’. You can connect multiple blocks and define conditions on those connections or ‘paths’ to create your strategy on Mudrex.

As discussed above, lets first write our entry/exit conditions so that we know what to do:

When the CCI is above +100, this means the price is well above the average price. This indicates that there is a prevailing uptrend, hence we can go long when the indicator crosses above 100

BUY: When CCI crosses up +100

Indicator Block for Buy Signal over Mudrex

When the CCI is below 0, it indicates that the uptrend has exhausted. Hence we can go long when the indicator crosses below 0.

SELL: When CCI crosses below 0.

Indicator Block for Sell Signal over Mudrex

Final Strategy: The final strategy on Mudrex looks like this

CCI Trading Strategy over Mudrex

Testing

We can now run a quick back-test to see how our strategy performs.

Back-Test Result for CCI

Improvements:

A multiple time frame trading strategy can be created using CCI. An uptrend is indicated if the price is above +100 in the long-term chart and is maintained until the CCI of the long-term chart dips below 0, while one can buy when the shorter-term CCI dips below -100 and then rallies back above -100. The vice versa will give out the downtrend and the sell signals as well.


Quick links